With effect from 6th April 2013 a small business will be able to account for its profits on a cash basis. No need to account for stock, debtors or creditors. No need to make distinction between purchase of assets (capital expenditure) and running costs. Simple? Of course not. Misleading? Of course.
The scheme purports to make life easier for small businesses – reducing red tape. It does nothing of the sort. It isn’t simplification. It’s another set of rules that has to be studied and understood. It’s an alternative that requires understanding of both systems in order to establish which is the best in any particular circumstance – and it might be different one year to the next. If people are not willing to understand and comply with one set of rules, what makes Government think that another set of rules will be understood and complied with any better? It simply creates confusion and almost provides an excuse for getting it wrong.
Is it good for business or the businessman? It is certainly no basis on which to judge the performance or profitability of the business. It is no way to encourage a small businessman to properly understand accounts or to help develop the business. Is it not better to encourage the keeping of proper records, to draw up accounts correctly and better understand the concept of profit? Isn’t that also fairer? Most employees, whatever their income, have no option but to be taxed on their true earnings.
It might be possible to justify a cash basis for a very small, part-time business, generating turnover of, perhaps, £10-20,000 a year. But the Government is intent on applying it to businesses with turnover up to £154,000. It does no one any favours. It’s the lazy approach to discipline – at a time when more, not less, discipline and compliance is required.

This entry was posted on Wednesday, March 20th, 2013 at 10:17 pm and is filed under DPM. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.